The Importance of R&D in Software Product Development

Originally published: July 13, 2018 Updated: May 11, 2022 7 min. read

Software Engineering

With technology assuming more and more of physical manufacturing processes, we are moving into an economy that is knowledge- and information-based. And just as this has occurred in the manufacturing of physical products (e.g., car and building designs), there is a growing need for R&D in the area of software products.

After all, we now understand the role that software plays even in the development of those physical products – smart navigational solutions, smart power grids, blockchain-based applications would never be possible without respective underpinning research.

What is Research and Development (R&D)?

R&D is, more than anything else, an investigation, with the goal of coming up with something new – a discovery that will result in a new product or service, or one that will improve or enhance an existing offering.

In the world of business, such research is “applied” (as opposed to theoretical) because its results will have real-world uses. Typical R&D activities include the following:

Designing and developing new products that have increased effectiveness or functionality;
Developing enhancements/improvements of existing products;
Designing and developing new testing methods/protocols;
Developing improved technologies for manufacturing, production, processes, especially those that reduce waste and increase yields or improve safety or energy use;
Development of robotics or other automated processes to improve efficiency;
Development of software for product or process improvements.

Today, companies are investing more in R&D than ever before. In a recent survey of central European companies conducted by Deloitte, 52% respondents stated that their companies will put more budgets into R&D over the next year or two, and, long-term, 67% plan on doing so. In addition to the obvious benefit to individual companies, there are other reasons:

Ultimately, innovations benefit entire sectors of the economy and can create jobs.
New discoveries can benefit entire societies, as countries become known as hubs for innovation and researchers gravitate to where they can utilize their expertise and investigations.
There are solid tax credits for companies who meet their government’s standards for what constitutes R&D. While 29% of companies in a 2017 survey of central European state that the guidelines for tax incentives are still somewhat unclear, they intend to go after them. In the U.S., by contrast, tax credit laws are far more codified, with a clear four-point test to determine if R&D initiatives qualify.
Just in the area of software development in the U.S., some examples of government tax credits include the following:
- Revenue of $750,000 = $20,000 in tax credits;
- Revenue of $8,000,000 = $90,000 in tax credits;
- Revenue of $30,000,000 = $275,000 in tax credits.

Importance of R&D in Software Development

New software in every niche hits the market every day. It is the result of creatives with great new ideas and software engineers who can put those ideas into innovative software.

Consider just the financial services industry, as an example. Banks began with software that allowed customers to access their accounts online, check their balances, schedule transfers and pull up a daily accounting of expenditures. But they knew that, as online banking grew, consumers would demand more and more services. Enter R&D. Now, consumers can access their bank and do many of the following, because of new software that has been developed.

They can receive personalized breakdowns of categories of expenses, so they can see where their money is going and how they might modify their budgets.
They can apply online for all types of loans.
They can be provided recommendations of how they might better plan for short- and long-term savings, based upon their individual goals.

Banks that stay on top of consumer wants and needs do the research on software development to meet those wants and needs, and then come up with the products that will serve those consumers.

It is the same with every business niche. Those companies that invest in software R&D will gain a competitive edge; those that do not will pay the price of lost customers/clients and a second-tier position within their industries.

There is no need to ask why R&D is important – it is the ticket to remaining competitive and to serving customers/clients better than that competition. It is also the ticket to getting recognition as a leader in the sector; and it is the ticket to attracting the human expertise that will move a company forward.

Software R&D of Today and Tomorrow

Today’s R&D more often moves from traditional labs to two- or three-day hackathons setting similar rules for both big enterprises (IBM, Microsoft, Facebook, etc.) and small start-up companies. According to one study, leading enterprises have started spending less on R&D of physical products like gadgets, investing more in software and IT services instead. At the same time, sponsoring internal, local, or international hackathons allows embracing both hardware and software R&D potential. Refreshing experience of a one-weekend event requires researching, developing and implementing a usable solution within a stringent deadline.

There are five reasons why companies run hackathons:

Creating a viable solution takes less time than in the lab, e.g., at the hackathon, PoC must be built in just 48 hours.
Receiving an access to the diversity of ideas and prototypes from numerous hackathon participants.
Employees are encouraged to think outside the box and bring their new ideas to life.
An opportunity to improve and test your new API platform adopted by other applications within your hackathon framework.
Reaching out a broader community of developers to aid your recruiting team.

Organizing an international hackathon can cover a few goals gathering the world’s best developers, innovators and other experts in one place. Not so long ago, Infopulse also took part in the international IoT hackathon as part of the Bosch ConnectedWorld 2018 conference, developing a blockchain solution for calculating vehicle emissions level. Participation in such a huge event brings authentic R&D experience.

The future of in-house R&D is mostly associated with Artificial Intelligence (AI) development including Data Science (Predictive Quality and Predictive Maintenance), Machine Learning, Chatbots, Voice Assistants, Robotic Process Automation, and others. These trends will completely transform our R&D labs and approaches defining the success of most companies. A recent study already claims that in 2018, 38% of 500 surveyed IT experts focus on their AI-based projects in comparison to 41% of professionals who deal with IoT and blockchain projects.

Obviously, those who are the first to adopt these trends and deliver genuine market-changing inventions will establish their leadership in specific industries.

What Happens When Companies Don’t Invest in R&D?

Recent research by Anne Marie Knott, professor at Washington University’s Olin School of Business, published in the Harvard Business Review, speaks to the importance of companies investing in their own R&D, rather than attempting to acquire it from outside or refraining from it altogether. Her study resulted in the following results and stats:

The reasons companies don’t invest in R&D are that they fear their innovators will “walk out the door” (joining other firms or starting their own companies), and they believe they can acquire firms that have the technology they need. Neither of these is true, according to her research.
The probability that innovators will leave their firm and begin a new one is 1%.
Larger companies invest more in R&D than smaller ones and have a higher return on R&D investments (called a research quotient). They conduct about 5.75 times more R&D than smaller companies do.
Small startups tend to receive more publicity on their R&D success, but, in fact, only 25% of those supported by venture capital actually return those investments. “Hitting a home run,” according to Knott is the exception, not the rule. Thus, the prospects of acquiring a small company that will have the software technology a company needs are actually not a common occurrence.

Knott’s conclusion is that there is no real alternative to your own R&D, and investing in this is a solid business strategy. It brings about greater productivity, more rapid time to market with new products, higher profits and growth, and ultimately more than pays for itself. Whether this is accomplished through in-house R&D staff or through the use of contracted expertise, it really does not matter. The goal is to gain the leading R&D edge in one’s sector.

Benefits of R&D for Software Product Development

To recap the benefits indicated above, it is critical to note that in-house R&D technology development will generate:

An increase in market participation;
The ability to advance marketability;
The ability to keep up with or advance beyond market trends;
The benefit of tax breaks, by way of deductions and credits.

R&D importance, and the key role it plays in a company’s future, is thus a given. No business that intends to remain fully relevant can ignore it. Consider just a few software innovations of 2017 that are making a big impact today:

Google Assistant is a bot that can now recognize the voice of its user. This software innovation has major implications for all industries with security concerns who want to focus on permission-based access.
JetBlue Airlines is now using facial recognition software for international travel. A camera at the gate takes a photo of the traveler, and then compares with an algorithm that is used by the Customs and Border Patrol Protection Agency that has a picture of that traveler on file.
The New York Times is now making use of software called Perspective, an AI, machine-learning tool that will “weed out” toxic comments in its discussion forums. By the end of 2018, the editors of this paper project that they will be able to open up discussion on about 80% of its articles and make sure that those will be non-toxic.

There are broader uses for all of these innovations – uses that will provide security and civility in many other sectors.

Going Forward with an R&D Initiative

Once you have made the decision that the importance of research and development cannot be ignored, it will be the job of an R&D manager or CTO to dig deep into what customers/clients want and need, what the competition is offering, and then to determine exactly what a new software product(s) must be able to do. This is the initial research activity, of course.

The rest of the research will be related to how to best develop the software product(s), what languages and methodologies to use, etc. Then, there is the development phase, with its architecture, testing, debugging, re-testing, and, ultimately, its launch.

If you lack the in-house expertise for such R&D, then it is time to have a discussion with Infopulse. We offer full consultation, based upon your business niche and development goals, conduct additional research on your behalf, have a variety of approaches to software development (Agile, Scrum, Waterfall, Kanban, etc.), and will be able to assign a dedicated team to your project. That team will work in collaboration with your own staff until you have the product that is a perfect match for your needs.